Bed tax diminishes value of Airbnb rentals

Auckland Council’s new targeted rate will hit the value of investment properties being used as short-terms rentals on platforms like Airbnb or Bookabach, one industry insider warns.

Friday, August 3rd 2018, 11:00AM

by Miriam Bell

Back in June, the council announced that short term rental providers would have to start paying the targeted accommodation rate, or “bed tax”, already levied on hotels and motels.

This week short term rental providers started receiving rates bills featuring the new tax – and many are shocked at the rates increase involved.

A meeting of short term rental providers earlier this week made it clear that many providers are also shocked that they’ll have to pay the tax on all their bookings since July 2017.

Some also say providing short term rental accommodation no longer makes financial sense and they will stop providing the service.

Apartment Specialists director Andrew Murray, who rents out several Auckland CBD apartments via Airbnb, says the values of investment properties will be affected by the tax.

That’s because for investors the value of their property is dependent on the financial outgoings and any extra costs eat into their returns.

“Additional taxes like this one hit you in the pocket and hurt you because, not only do you now have to pay more outgoings, but it impacts on the value of your investment.

“With Airbnb you want to be able to leverage your income, and your ROI, and this impacts on the ability to do so. It all comes down to how much you are willing to pay for your investment.”

But Murray says that investors, with properties well-suited to the short term rental market, still stand to do well as returns can still outperform those from traditional rental arrangements.

“Overall, the new tax is not good and, along with many people, I’m not happy about it. But I don’t think it will lead to a mass exodus of people pulling out of Airbnb.”

The way the council applies the new tax does vary – which means that not everyone providing short term rentals is affected.

The tax is not applied to those providing “room-only” accommodation or those providing accommodation for less than four weeks a year.

However, if someone is providing short-term rental accommodation for over 180 days the council charges a full business rate.

For those that have rented out their properties for more than 28 days but less than 180 days, the tax charged varies but it is not charged at a commercial rate.

In response to charges the tax has been applied “retrospectively”, the council says that all rates are set on the basis of what happens the previous year.

At this week’s meeting, providers also expressed concerns about how the council will determine if someone is providing short term rental accommodation and to what scale.

Meanwhile, Tourism Industry Aotearoa is also not happy with the situation, saying it fails to reduce unfairness for traditional accommodation providers.

TIA chief executive Chris Roberts says the council’s report on Airbnb in Auckland estimates there are 12,357 properties available on Airbnb yet only 1,100 properties, or about 9%, are to pay the new rate.

He also questions the rationale behind excluding “room-only” rentals as that excludes a significant proportion of the market.

“It can be reasonably assumed that some of these room-only providers are generating significant annual income. Our view is that to achieve fairness and spread the rate burden, room-only providers should also be included.”